Often, we have clients in our office who tell us that they have a purchase agreement in place, whether it is for a business, a building, or something else. Naturally, we want to review such agreements for our clients, so we will then ask them for a copy of the agreement. That is usually when we hear something to this effect: “Well, we don’t have anything in writing. We talked about it and shook on it.” Regrettably, a handshake does not a purchase agreement make.
It is always better for our client if they have us prepare the purchase agreement, rather than reviewing a purchase agreement prepared by someone else. To quote Benjamin Franklin, "[an] ounce of prevention is worth a pound of cure." This is especially true if the drafter of the agreement is not an attorney. There is a lot that goes into the substantive preparation of a purchase agreement, no matter what item or asset is being purchased. There are many considerations and terms that need to be included. A layperson is typically not aware of the key subtleties. This includes provisions that address items like Small Business Administration requirements, arbitration clauses, venue, default, taxes, and warranties, to name just a few.
Another dangerous and often costly mistake made by clients is using form contracts. Every transaction, especially when dealing with real estate, is highly individual. Form contracts where the parties simply need to “fill in the blanks” do not work. They are never specific enough, rarely properly address state law, and often contain extraneous provisions, while missing necessary ones.
A lot of times, people are very eager to buy or sell something and they are willing to sacrifice a lot in order to make it happen. We always warn clients against this line of thinking. Something that may seem small or trivial now could become extremely problematic in the long run. We do not want our clients to open themselves up to liability that could come back to bite them years down the road. An example of this is property tax prorations. Property tax prorations are quite complex and are capable of shifting the value of the transaction to the seller or the buyer. A client may say, “I will just pay the taxes” without realizing it may be a $10,000 swing.
Purchase agreements properly memorialize a transaction and also help to protect both the buyer and the seller. If a proper purchase agreement is not in place the ramifications for both parties could be extraordinarily costly.